The Breakdown - The IMF, G20 and BIS Gear Up for the Central Bank Digital Currency Era

Episode Date: October 14, 2020

Today on the Brief: Is the “blue wave” Democrat victory narrative in the presidential election starting to shake up Wall Street?  Johnson & Johnson pause COVID-19 vaccine trial  1000 Satoshi-era bitcoins are on the move  Our main discussion: The world’s central banks are moving quickly on digital currencies. NLW looks at a slew of recent news showing how much of a priority CBDCs are becoming: A report from the Bank for International Settlements and seven other central banks setting design principles for CBDCs A G20 regulatory standards framework  A forthcoming OECD tax reporting framework  One need only look at the increasingly speedy rollout of China’s DCEP to understand why this has become a major priority for central banks everywhere.

When Libra was launched, the U.S. was kind of whatever. They wanted to have a discussion right away, but they mostly wanted to yell at Mark Zuckerberg, or at least the generals that he sent, for being Facebook. They didn't really even want to talk about the currency itself. A few months later, after China had really responded, things had shifted in a major way. Zuckerberg came in wholeheartedly talking about the need to do this because China would if they didn't.

and in fact China was while they weren't, this is an issue that is going to get swept up into the larger conversation about the U.S. versus China and the economy of the 21st century. And it's going to become a major political issue in turn. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world.

The breakdown is sponsored by Crypto.com, So.io, an elliptic, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, October 13th, and today we are talking about the Central Bank Digital Currency era, and specifically the just swirl of new reports and panels and press releases from the IMF, the G20, the Bank for International Settlements. This thing is happening and it's happening fast. First, however, let's do the brief. First up on the brief today, there is a slight shift backwards on the blue wave narrative. So yesterday we heard how much the narrative on Wall Street had shifted around a blue wave of Democrat victories in the elections.

Basically, if Democrats win everything, Wall Street and markets think that that clears the way for a major stimulus to happen. And markets want that stimulus. The new narrative wrinkle has to do with skepticism around whether the Dems can capture the Senate. So Bloomberg today wrote a piece, investors turn skeptical of U.S. Democrat Blue Wave victory. And some analysts are questioning really whether there can be a Democratic victory in the Senate. If there wasn't, it means that that fresh pile of cash would be blocked up. Here's a question. quote from that piece. A combination of Republicans retaining control of the Senate or stimulus being delayed until after the election will hurt economic growth through the first quarter,

according to Bloomberg strategist Vince Signorella. Add to that the current and Passover stimulus, which leaves almost no chance of a deal before the election, and you have a recipe for a market downturn. Now, I said yesterday that I was watching election betting odds because it's a good way to see what overall different markets think about what's going to happen, and Dems are still predicted to take the Senate at 61% to 39%, basically. So it's interesting that you're starting to get articles on this. Frankly, it could just reflect the news needing a new narrative cycle every 24 hours so things don't get stale. But if nothing else, it's a reflection of just how tied to this stimulus hopes and dreams markets really are. Speaking of narratives, next up,

on the brief, a stumble on the corona vaccine trade. One of the things that markets have been the absolute most focused on recently has been vaccine trials, how quickly a vaccine is likely to come to market. Hold aside, of course, the fact that Americans on both sides of the political aisle are extremely skeptical of vaccines for extremely different reasons, but that's neither here nor there. When it comes to markets, thinking about returning to normalcy at the center of that image is a fast vaccine. Reinforcing this was yesterday's discussion of Goldman Sachs, who said that the biggest thing that would strengthen the dollar would be a delay in a vaccine. In other words, dollars are a safe haven, so things are bad in general lead to a strong dollar. Today, Johnson

and Johnson announced that it had paused clinical trials because a study volunteer got sick with an unexplained illness. This means that all of their trials are being shut down and paused for the moment. This includes a phase three trial that began in September and aimed to enroll 60,000 people in the U.S. From here, an independent drug safety monitoring board has to review, and if it's clear that this has nothing to do with COVID, the study can resume. Seems simple enough, but in practice it really isn't. Last month, AstraZeneca had to pause for similar reasons, and they've subsequently been able to restart trials in the U.K., but not in the U.S. This, combined with that narrative shift that we were discussing before, could reintroduce some real volatility into the markets in the days ahead.

Third, and this is a fun one, we've got some Satoshi-era coins on the move. 1,000 Bitcoin's mind in 2010 moved over the weekend for the first time in a decade. It was flagged by a crypto trader named Kirill K, and here's the timeline from the block. The Satoshi-era Bitcoins were sent to this wallet at 6.14 a.m. on October 11, 2020. About 40 minutes later, those 1,000 coins were split among 81 different wallets. In a separate post, Kirill suggested that the latest movement is related to a separate transfer in March that also involved 1,000 Bitcoins. So you'll remember we covered that on the show as well, and what we talked about then is the

consensus that they weren't actually Satoshi's coins. They were just very, very early from the Satoshi. era. And it seems like this is another stash from perhaps that same miners' horde. Hans Haig from Aikai said, it's like he's organizing his vault. This is obviously extremely evocative, and it's crazy to think back that these coins total were worth less than $100 in 2010. It's a reminder of just how much Bitcoin is the only modern financial industry that also has its own mythology. And I think when it comes to something as central to the human experience as money, that mythology actually matters. Now, however, let's shift to our main discussion. And I know it seems like we're talking about

CBDCs a lot, but damn if this just hasn't kicked into high gear. I've said repeatedly on this show that CBDCs would be a gradually then suddenly type of thing, and we are very much getting into the suddenly type of moment. Let's start at the end of last. week, the Bank for International Settlements, which is really the central banker's central bank. It is the central bank that organizes all the other central banks. So it and seven other central banks, including the big ones, the U.S., Canada, the Bank of Japan, Switzerland, put out a report setting out initial principles for how national digital currencies should approach monetary policy. The report was called Central Bank Digital Currencies, foundational principles and core features.

It laid out a number of, like I said, core principles for how these CBDCs should work and how they should be designed. Here's how CoinDesk summed it up. Firstly, a CBDC should work alongside cash and other current payment types, quote, in a flexible and innovative payment system. Secondly, it should support wider policy objectives and do no harm to monetary and financial stability. Thirdly, it should promote innovation and efficiency. So I think the really important thing about this is that we've moved from talking about these things as theoretical concepts to now laying out precepts for how a nation should actually approach this.

This is ultimately a design document. It's a blueprint, now a very foundational blueprint, but a blueprint nonetheless. Interestingly, these banks keep saying stuff like, oh, we're just talking about this and it doesn't mean that we're committed to doing it, but I think that that's obviously simply not true. The pure amount of energy and time being spent on this suggests that it is a genie that's likely not going back in the bottle. Maybe it's not fully out, but man, is it coming out quickly. This episode is brought to you by Crypto.com, the Crypto Super app that lets you buy, earn and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin.

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3.1 million digital yuan transactions had been made in a commercial setting worth around 162,000, million just during the three-city test between April and August of this year. All of this would be interesting on its own, but let's zoom up to this week. There was a big virtual IMF meeting this week and a new G20 standards report all about CBDCs. The G20 is obviously the biggest economies in the world, and they are working with the IMF, the World Bank, and the Bank for International Settlements to, quote, formalize the use of CBDCs. According to the report, by the end of 2022, these G20 members plus the IMF, the World Bank, and the BIS, will have completed a regulatory stablecoin framework and research and selection

of CBDC designs, technology, and experiments. So we're talking about less than two years here. In addition to that, the report is saying that the IMF and the World Bank will have the technical capability to make CBDC transactions happen between these countries by the end of 2025. Again, that's not the end of the decade. We're talking about less than five years. I wonder how much these bankers are feeling the heat from private alternatives. In a statement that seemed better suited to last year than this year, but shows how clearly they're still focused on this threat, Reuters reviewed a draft statement from G7 financial ministers saying that they would oppose a Libra stablecoin until it was, quote, adequately regulated.

Here's a direct quote from that draft. The G7 continues to maintain that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards. You may be sitting here thinking, well, that's nice, but there's already a lot of global stablecoin projects happening. We recently crossed more than 20 billion in total circulating supply. And that's a number that just has continued to grow throughout this year from a beginning point of less than $5 billion. Now, in a separate event, the governor of the Bank of England, Andrew Bailey, said that he has a hard time seeing how Bitcoin has any intrinsic value. But he also

said that he's nervous about people using it for payments. I wonder if you take these things together that maybe these central bankers have a sense that people want and are going to use digital alternatives, whether they come from governments or not. Meanwhile, Christine Lagarde at the same event, and this is the president of the European Central Bank, said that they are very seriously looking at the creation of a digital euro. This is at this point the 20th, 30th, 80th, infinitieth statement of this effect in the last month or so, but the fact that they just keep repeating it means how clearly this is a central piece of the agenda. Lagarde said that e-commerce had grown almost a fifth between February and June due to the pandemic. And indeed,

the pandemic was at the center of this narrative around a digital euro. Ligard said that the pandemic has accelerated how, quote, we work, we trade, and we pay. The EU is meant to make a decision by April about a digital euro. But regardless, they keep affirming the idea that if they do a digital euro, it will supplement rather than replace cash. This, as we're going to find out, is a key part of, I think, the overall CBDC discussion. But wait, there's more. The Organization for Economic Cooperation and Development, the OECD, said that it's pitching

leaders of the G20, the world's largest economies, on a framework for crypto-tube. tax reporting next year. It's meant to clarify both local and international issues and be dynamic enough to actually handle crypto. It's Tuesday, guys. All of this has happened in the last 48 hours. Meanwhile, we also have yesterday's heard on the street article from the Wall Street Journal and a lot more chatter than normal on social about these central bank coins. Danielle DeMartino Booth got in a discussion with some people about Fed coin and whether it would be privacy preserving. She tweeted, Powell has always maintained that when and if there is a Fed coin, it would be as anonymous as any bill of currency in our wallets. The true test will come down to whether central

banks use crypto as a means by which to monitor and control spending and saving. Economist Harold Malmgren has also gone off on central bank currencies over the last 24 hours on Twitter, saying, for example, digital currencies are coming, starting in parts of China days from now, then gradually appearing in several domiciles across Europe and Asia, especially the Anglosphere, officially said to be just in parallel with cash, but economists proponents aiming to end cash ultimately. The key thing that I think both Danielle and Harold get is that this is a battle for control. Meanwhile, China is just blistering ahead.

Over the weekend, there was a 10 million digital yuan giveaway, which is worth a little under 1.5 million U.S. 1.91 million people in Shenzhen signed up for this, and 2.3% of them, or 50,000, won a digital red envelope containing 200 digital yuan worth about $30.000. This is designed to be spent at 3,389 stores that are set up to handle DeSep and just shows how much China is ratcheting up their push for the DeSep to come live. So here are the two biggest dimensions of this battle to get ready for. On the One hand, there is the within our country battle about the way that this is designed, and this is going to play out in jurisdictions around the world. The central question around the design of

digital currencies will be how anonymous it is. I did a whole show about just how big this battle is last week, but I think it's the central issue. Will this be as anonymous as cash? Will it be some sort of hybrid between cash and digital transactions now? Or will we say goodbye to money that maintains privacy forever. That will, when people start paying attention, be the central political battle around the actual design of a digital currency. But when it comes to the justification, I anticipate a battle that is also largely geostrategic and geopolitical. If you remember, when Libra was launched, the U.S. was kind of whatever. They wanted to have a discussion right away, but they mostly wanted to yell at Mark Zuckerberg, or at least the generals that he sent, for being Facebook.

They didn't really even want to talk about the currency itself. A few months later, after China had really responded, things had shifted in a major way. Zuckerberg came in wholeheartedly talking about the need to do this because China would if they didn't. And in fact, China was while they weren't. This is an issue that is going to get swept up into the larger conversation about the U.S. versus China and the economy of the 21st century. That's why we keep covering it, because it is more than just some random crypto issue, it's more than just some random thing going on inside central banks. This is now emerging as a major initiative, a major focus of all of these banks, and it's going to become a major political issue in turn.

Anyways, guys, thanks for listening. I appreciate you. I appreciate your ratings and reviews. They're making a huge difference. Keep it going. If you haven't yet, go consider giving me a rating. Smash those five stars like the YouTubers say. And until tomorrow, be safe and take care of each other. Peace. Hey folks. I'm Adam B Levine, podcast editor here at CoinDesk. Ethereum 2.0 is coming, but there's a lot that we still don't know. Join CoinDesk on Wednesday, October 14th for the fully virtual CoinDesk Invest, ETH 2.0.com.com. event, where experts will dig into the sweeping changes underway within the Ethereum ecosystem and what they mean for investors. Keynote speakers and panelists will offer deep dives into Ethereum's new path with proof of stake, sharding, and other elements of the impending 2.0 upgrade, as well as how the new framework impacts the rapidly advancing business of defy, stablecoins, and decentralized exchanges. You'll learn about the opportunities and challenges posed by staking

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